Fixing California: San Jose Mayor Chuck Reed

A: I think the Stockton case is important in several regards. First, it demonstrates what happens if you slip into serve delivery insolvency. Your only choice then pretty much is bankruptcy because you’ve gone so far that you’ve just exhausted all of the alternatives.

It’s not really a legal concept, although the judge in the bankruptcy in Stockton did refer to it. I don’t think it’s a legal definition. It’s a definition that ICMA uses that it describes a condition that you’re which is one step out of bankruptcy. I think that demonstrates what happens if you wait too long. If you wait until you’re in trouble, you get in too deep, then there’s very few things you can do except bankruptcy, which is why I urged the council two years ago to try to get ahead of this, not wait.

Q: Statewide, how big is the pension problem? Is there a city that you’re aware of that does not need some sort of pension reform?

A: There are certainly cities that are not being stressed by it. It helps if you have a lot of money. And then you can absorb the increases. San Francisco’s done a pretty good job of absorbing increases. But they’re a wealthy city. If you look at L.A. you can see that they haven’t really been able to do much about services because they’re spending a lot more money on retirement costs just like us. And so there are lots of cities in between. But if you look at the growth curve of pension and retirement costs generally, it’s up dramatically for practically every city in the state.

And if you look at what CalPERS has said they’re going to have to do over the next five or six years, it’s a 50 percent increase. And that’s going to hit practically, you know, a couple thousand jurisdictions around the state.

Q: How about Gov. Jerry Brown’s state pension reform?

A: Small. It was a 5 or a 10 percent solution. It’s helpful and useful and good. I’m glad to see that they did it and applaud the governor for taking it on and making something happen. But it’s still 5 or 10 percent of the problem.

Q: What do you think is the best way to get statewide reform?

A: I think the best way to get reform is going to be a statewide ballot initiative because having seen what the Legislature did, a 5 or 10 percent solution, it doesn’t solve the problem. It certainly hasn’t gone away, although plenty of people have declared victory and hope that everybody will go home. The problem isn’t going away. I think we can only get it done with a statewide ballot initiative, to make sure we have clear authority to modify future accruals and give employees a choice with a lower cost plan.

The central problem in all of this is the benefits are too expensive, the government can’t afford them and the employees can’t afford them. So we have to be able to modify those future accruals to bring the cost of the benefits down. We don’t have to eliminate them, but we need to be able to modify them.